Barings launch of three funds anticipates nod from Beijing

Company's three new Hong Kong-domiciled products are part of its preparations for cross-border mutual fund recognition

PUBLISHED : Wednesday, 06 May, 2015, 11:55pm
UPDATED : Thursday, 07 May, 2015, 12:20am

Barings Asset Management, one of the world's biggest institutional investors, launched three Hong Kong-domiciled funds on Wednesday as part of its preparations for mutual fund recognition between Hong Kong and mainland China.

The initiative, still subject to approval from Beijing, would allow Hong Kong-domiciled funds to be sold in mainland China, where the average household savings rate is one of the highest in the world, and Chinese funds to be sold in Hong Kong.

Besides the lucrative business opportunities in mainland China, the British-based fund manager said the regulatory process of setting up locally registered funds was more convenient since it had to deal with only one regulator rather than multiple counterparts in overseas markets.

Setting up Hong Kong-domiciled funds helped expedite the authorisation process with the city's regulators, said Gerry Ng, Barings' chief executive for Asia excluding Japan. He said details of the mutual fund recognition scheme had not yet been fully unveiled to the industry.

A fund authorised in Hong Kong will not automatically gain entry to the mainland market, or vice versa, according to the Securities and Futures Commission, as the yuan is not yet fully convertible.

Despite the technical problems, China Securities Regulatory Commission chairman Xiao Gang said in January that mutual fund recognition would be the next important project to push forward after the Shanghai-Hong Kong Stock Connect scheme.

"We also are looking for more clarity from the stock regulators with regards to the conditions and criteria of recognition," Ng said, referring to factors such as the number of years a fund needs to be established and minimum assets under management.

The SFC and CSRC started discussing mutual recognition for fund products in 2012. Former SFC deputy chief executive Alexa Lam Cheung told the South China Morning Post earlier this year that discussions about the scheme had entered the final stage.

The mutual recognition platform will dramatically expand the Hong Kong fund industry's distribution network, allowing fund managers to tap into mainland China's huge savings while giving investors a new channel to invest overseas as Beijing liberalises the financial system and currency controls.

People's Bank of China governor Zhou Xiaochuan said last month Beijing would speed up currency reforms as Beijing had explicitly expressed its desire to put the yuan into the International Monetary Fund's currency basket as a sovereign reserve currency, alongside the US dollar, euro, pound and yen.

The yuan is expected to represent 10 per cent of global reserves by 2025, up from 2.9 per cent by the end of this year, according to a survey of 72 central banks holding US$5.9 trillion in reserves.

Thirty-five central banks, or 53 per cent of the respondents, said they were either investing or considering investing in the yuan, although they retained concerns over its convertibility, the liquidity of markets, and the quality of credit in some cases, a joint report by Central Banking and HSBC said.